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Richard Cordray, The Filibuster And The CFPB

Senate filibusters over nominations often have more to do with policy issues than the qualifications of a nominee. That’s the case now with the nomination of former Ohio Attorney General Richard Cordray to be the first Director of the Consumer Financial Protection Bureau (CFPB). Much has been written about Cordray’s history as a liberal activist, yet the real motivation behind the Republican filibuster is an effort to protect consumers from the CFPB.

The Senate is scheduled to vote tomorrow on ending debate on the nomination. Republicans are expected to block cloture, effectively killing the nomination. Senate Republicans say they won’t confirm Cordray, or any other nominee, unless they get three reforms to the CFPB. Until the Obama Administration sits down with them to work out the details of reform, don’t expect anyone to get confirmed to the post for at least 12 months.

The senators’ main beef is that the CFPB was established as an independent agency with vast regulatory and no exposure to Congressional oversight. Conservatives view that as akin to giving a loaded gun to a child and then walking away.

Diane Katz of the Heritage Foundation writes that, if confirmed, the little known Cordray would overnight become one of the most powerful figures in Washington and in the financial sector. He would wield unparalleled powers with virtually no accountability.

President Obama, of course, thinks such regulatory hegemony will benefit consumers, but those who embrace a balance of powers within government know better. All of which is to say that Cordray ought to occupy himself in some other way until Congress remedies the bureau’s structural flaws.

The Dodd-Frank bill creating the CFPB purported to remedy Wall Street abuses that contributed to the 2008 economic crisis. Yet Katz argues the bill fell victim to mission creep poking into issues and products that had nothing to do with the Wall Street melt down.

Spawned by the vast Dodd–Frank financial regulation statute, the CFPB enjoys sweeping powers over all manner of consumer credit, including consolidated and expanded authority over consumer financial products and services previously wielded by seven federal agencies. We’re talking credit and debit cards, mortgages, student loans, savings and checking accounts, and more. (None of which had anything to do with the financial crisis, by the way. But that didn’t prevent Messrs. Dodd and Frank from exploiting the recession for regulatory gain. If anything, the bureau’s meddling will make financial products and services harder to obtain and more expensive to use.)

Another big issue for Katz is that this new bureaucracy would have little to no oversight.

The problem is that the CFPB is ensconced within the Federal Reserve. Therefore, its budget is not subject to congressional control. The bureau’s status within the Fed also effectively precludes presidential oversight.

A May 5 letter from 44 Republican Senators to President Obama said the following three preconditions would have to be met before they would allow anybody to be confirmed as head of the CFPB.

Establish a board of directors to oversee the Consumer Financial Protection Bureau. To prevent a single individual from dominating the actions of the CFPB it should be governed by a board of directors. Diversifying the leadership of the CFPB would also reduce the potential for the politicization of the CFPB and ensure the consideration of multiple viewpoints in the CFPB’s decision-making. This structure is consistent with the organization of the Federal Reserve Board, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation.

Subject the Consumer Financial Protection Bureau to the appropriations process.To ensure that the CFPB does not engage in wasteful or inappropriate spending and has effective oversight, the CFPB should be subject to the Congressional appropriations process. The Securities and Exchange Commission, Commodity Futures Trading Commission, and the Federal Trade Commission have long been subject to the appropriations process for the same reasons.

Establish a safety-and-soundness check for the prudential regulators.Federal bank regulators should be given meaningful tools to prevent the CFPB’s regulations from needlessly causing a bank failure. After all, one of the best consumer protections is a safe and sound bank. Such a check by the prudential regulators will provide a reasonable restraint on the CFPB’s authority and ensure that the CFPB’s regulations strike the right balance between consumer protection and safety-and-soundness.

If, as expected, Richard Cordray’s nomination goes down in flames tomorrow, it will be interesting to see if the Obama Administration meets with Republicans to find some common ground on these three demands. It is more likely that President Obama will use the Cordray nomination to beat up Republicans for defending Wall Street. Either way, the CFPB is unlikely to start work until the Obama Administration negotiates in good faith with Senate Republicans to cut a deal.